The water-energy connection

The close links between water and energy mean that efficiencies made in one sector have a beneficial effect in the other. Businesses and investors must be alert to the fact, says Mike Scott.

The UK, along with much of North-Western Europe, has recently been in the grip of drought-like conditions that have raised serious worries for harvests and water supplies for consumers, particularly in the South-east of England.

However, the lack of rainfall has highlighted another issue – the interlinkages between water and energy and their potential to cause severe disruption for businesses. “Energy and water are two of the key business issues,” says Richard Spencer, head of sustainability at the Institute of Chartered Accountants of England and Wales (ICAEW). “The debate about climate change is often dominated by discussions at UN level. Water and energy represent something much more specific.”

The dry spell in Europe is already starting to feed through into higher power prices as hydroelectric supplies from Scandinavia to Switzerland look set to be disrupted by lack of rainfall. The fears over hydro power extend to France, which experienced the driest spring for half a century. Far more serious for France than the impact on its hydro power plants is the effect that water shortages have on its nuclear power stations, which provide almost 80% of its electricity.

During the heatwave of 2003, a number of nuclear stations had to be shut down as the power plants are not permitted to return to rivers the water that they use to cool their reactors if river levels are too low. However, it is not just hydroelectric and nuclear power stations that need water. Any thermal power station – whether fuelled by coal, gas or biomass – needs water for cooling.

According to General Electric, more than half of all the water consumed by industry worldwide is used to generate electricity, while the Worldwatch Institute points out that US power plants withdraw 143B gallons of water a day, 41% of all freshwater withdrawals. In addition to this, huge amounts of water are used in the extraction of many of the energy industry’s raw materials. “The metals and mining, and oil and gas sectors are at high risk from water scarcity. These sectors require significant amounts of water for operational purposes and can also pose a significant risk to water quality,” says Randeep Sanghera, lead water analyst at Eiris, the ethical investment research group, and author of a recent report, A Drought in your Portfolio: are Global Companies Responding to Water Scarcity?.

“An additional risk arises as the site of operations is dictated by the location of the raw material rather than access to water.” This applies not just to traditional feedstocks such as coal, oil and gas, but also to newer sources from biomass to shale gas and oil sands. Oil sands are at least 20 times as water-intensive as conventional fuels, while biofuels are thousands of times more water-hungry.

The latest data suggest that shale gas is seven times more water-hungry than conventional production. Coal-fired power plants are heavy water users now, but if they are fitted with carbon capture and storage equipment, their water consumption could increase by 30-100%. Nor is it just a matter of quantity – with shale gas and oil sands, the fear is that the water used to extract these resources will be polluted and rendered unusable by other users. At the same time, the water industry needs energy – “for humans to take advantage of water resources, energy from some source is needed to lift, move, process and treat the substance at every phase of its extraction, distribution, and use,” explains the US Agency for International Development.

GE says that cities use between 6% and 18% of their energy to produce, treat and transport water. Electricity bills make up three quarters of the cost of processing and distributing water, adds the American Institute of Chemical Engineers. It is not just about cost either. The energy needed to treat and pump mains water to our homes, and to collect and treat wastewater from the sewage network, is responsible for nearly 1% of the UK’s annual greenhouse gas emissions and heating water in our homes is responsible for a further 5%, according to the Energy Saving Trust.

However, the water issue is even more complicated than energy, where at least a tonne of CO2-equivalent is a global standard and its emission has the same impact wherever around the world it is emitted. By contrast, water resources vary hugely from place to place – even within a small country such as the UK, where Scotland had a wetter than normal spring as East Anglian farmers prayed for rain.

In addition, the particular emphasis of the water issue varies among different energy sources, according to the World Policy Institute (WPI). In the nuclear industry, for example, is the impact of large withdrawals (and the return of water to rivers and other water courses that is warmer) on marine organisms is the key factor. However, when it comes to shale gas and the hydraulic fracturing used to extract it, the debate focuses on drinking water quality. Solar-thermal generators, meanwhile, need to weigh up the trade-offs between plentiful solar resources and scarce water resources in arid environments.

Energy companies will increasingly have to take water into account as a strategic issue when they look at where to locate power plants and what technologies to use. Among conventional power plants, gas-fired plants consume the least amount of water per unit of energy produced, with coal- and oil-fired plants using roughly twice as much water as gas-fired plants and nuclear consuming approximately three times as much, according to a WPI report on the Water-Energy Nexus. The installed base of the solar thermal form of electricity generation (as opposed to photovoltaic) consumes twice as much water as coal and five times as much as gas-fired power plants, the report adds.

However, it is not that simple – the integrated gasification combined cycle process cuts a coal plant’s water consumption by half, while carbon capture technologies could increase a coal plant’s water consumption by 30%-100%.

One area where the report is fairly unequivocal is in saying that “wind and solar photovoltaic electricity consume minimal water and are the most water-efficient forms of conventional or alternative electricity production”. Seen through the lens of water scarcity, the viability of different renewable energy technologies takes on a different hue.

The water-energy nexus is a concern not just for water and power utilities but for other businesses as well. The Carbon Disclosure Project, which has been collecting data about carbon emissions from businesses for the past decade, has recently launched a Water Disclosure Project. “Water is a strategic issue – it’s not just about costs,” says Chris Hedemann, CDP Water Disclosure Account Manager. “If there is not enough water to produce energy, businesses suffer disruptions to their operations and may not be able to get their goods to market.

“It is important to look at water and energy in tandem,” he adds. Committing to energy-intensive water-saving technology such as desalination plants leaves companies – and countries – vulnerable to disruptions to the energy needed to run them. It is not just their own operations that they must consider either – according to Hedemann, clothing chain H&M saw a 30% drop in its first quarter profits because of a rise in the price of cotton that was mainly driven by drought and then devastating floods in Pakistan.

However, one of the problems is that information about water consumption remains very limited. “It’s still really early days for water. There is no globally-recognised water accounting system like there is in greenhouse gas accounting,” Hedemann says.

A knock-on effect of this lack of information is that there is little awareness of the importance of the links between water and energy. Sanghera says that just 1% of power generators have demonstrated a commitment to address the water issue and have targets and monitoring processes in place. However, businesses and investors are starting to wake up to the problem, he says.

Eiris commissioned its report as a result of requests from investors while CDP’s Hedemann says that 72% of the companies that responded to its request for information on water identified the existence of linkages and trade-offs between water and energy.

There are huge risks, but also huge opportunities, says Spencer. The close links between water and energy mean that any efficiencies made in one sector have a beneficial knock-on effect in the other – so one of the easiest ways for water companies to cut their energy consumption is to repair leaks while power generators can cut their use of water by implementing energy efficiency measures. “If you want your business to be sustainable, the resources your business depends on must be sustainable – and that includes access to water and access to energy,” Spencer concludes.